<p>Thought I'd post this so people can learn from my mistake....</p>
<p>DS is about to head off to college tomorrow, and is just a few weeks short of his 18th birthday. He had been given a $1000 savings bond at birth by our friends, and I figured we'd cash it out and put it in the new checking account he is starting.</p>
<p>Because he is under 18, I had to cash the bonds for him and then we put them into his account. After doing the transaction, the teller handed me a receipt for the IRS. It turns out that the interest income of $500 is on my social security number, and will have to be reported on my taxes, and we'll have to pay taxes at our family rates.
If we had waited a few weeks, the interest income would have been in his name, and since he will have little or no income this year, he would not have any tax due on it.</p>
<p>While it's not the end of the world, it's a silly mistake to have made. Also, I wonder if when we fill out FAFSA next year it will look as though we have a lot of investments (given that interest rates are so low right now).</p>
<p>Certain savings bonds used to pay college expenses can be cashed tax free. Couple of catches (of course). One catch is that the bonds have to have been bought when the owner was aged 24 or over and must be used for a dependent’s education expenses. Not sure if that works for your situation but if you are liable for the tax are you perhaps a co owner? Might work, worth looking into anyway. The tax rules are in IRS publication 970 page 73. (just google IRS 970 for the publication) The other catch is that the eligibility for the tax break starts phasing out over certain incomes.</p>
<p>I am not sure it is correct that you would have to report the income on your taxes. I thought you could elect to do so perhaps. My daughter had a few small investments that we sold the year she started college (probably a few weeks before she turned 18) and I am pretty sure the 1099s came in her name. Though it is a while ago. I would suggest investigating further anyway.</p>
<p>I deliberately put my name and social security number on bonds I bought for the kids when they were young. As swimcatsmom said, there is an interest exclusion that can offset qualified education expenses. Check IRS Pub 970 for details.</p>
<p>Perhaps this is a requirement of the local bank where you cashed the bonds? Or was your son not with you?</p>
<p>If the OP’s social security number was reported on the redemption form, then she will receive the Form 1099-INT and will have to report the interest on her income tax return. However, if her son’s SSN was used, his name will be on the 1099, and he would declare the income.</p>
<p>I don’t know if the OP was also listed as a co-owner of the bond with her son or if she was acting solely as legal guardian of a minor. If she was a co-owner and used her SSN on the redemption, there isn’t anything she can do now, because it is assumed that whoever cashes the bond will pay the tax on any interest. (A savings bond can be cashed by any co-owner, without requiring the consent of any other co-owners.) However, if she was acting on behalf of a minor, then his SSN should have been used. If it was not, she should go back to the bank and ask them to correct the “error.”</p>
<p>Thanks for all the info. My son was with me but they did not ask his SSN, they asked for mine. The funds were initially put into a custodial account I have for him, but then (a few minutes later) we transferred them into a checking account in his own name. </p>
<p>So while technically the receipts from the bond was placed into my account, it didn’t stay there for long. I will definitely check out the IRS publication and see if the bank can correct the error.</p>
<p>Mamabear: I thought the bond would be worth more than the face value of $1000, but actually it was a few dollars less than that. Not sure why, or what series it was.</p>